Energy, Environment, and Economy

Brazil’s Passage To China

The BRICs are getting cozier.

In 2007 Brazil finally experienced a trade deficit with China. “Brazil’s official figures show its China-bound exports totaled $10.75 billion in value in 2007, with imports from China reaching $12.62 billion,” according to Xinhua. ” 6 percent of all Brazilian exports went to China last year, while 10 percent of all imports came from China,” according to NPR. Bilateral trade rose 71.7% in 2007. Trade between the two took off between 2000 and 2003, when trade rose five-fold, and then again from 2004-2007 when trade more than doubled (BBC).

In Brazil’s July-launched China Agenda program, the Brazilian Foreign Trade Secretary spoke of hopes to triple exports to China by 2010, which would account for $30 billion. This could mean that by 2011, Brazilian-China trade could surpass US-Brazil trade. However, I think that is unlikely, as I explain below.

China Supplies Mfg. Goods, Brazil Supplies Raw Materials

“96 percent of Brazil’s Chinese imports are high-value manufactured goods, 74 percent of its exports to China are low-value commodities such as soybeans and pig iron,” according to the AP.

According to Agenda China, Brazil hopes to increase exports of 619 product lines, including “Brazilian pharmaceutical products, chemicals, plastics, shoes and metals, as well as expanding the array of agricultural goods, through a higher Brazilian presence at trade fairs and through visiting delegations of businessmen” (AP). Brazil currently has three consulates in China. They are located in Beijing, Shanghai, and Xianggang (Hong Kong).

Implications

Brazil supplies raw materials China will require, such as iron. However, it is difficult for Chinese ships to reach Brazil, which could feasibly increase transport costs. They only have three options; a sea route (through Panama), another sea route around the tip of South America, or perhaps a land/sea route that would need extensive development before it could be widely feasable.

Of the three, transport through the Panama canal is by far the quickest (by days). The planned increase in Sino-Brazilian trade will make it even more vital that Panama’s expansion of the canal (to serve larger ships) is completed by 2014. (Panama Canal Expansion Proposal)

“The current locks are 33 metres (108 feet) wide, but the new locks would be 50 metres (150 feet). A third lane of traffic would be able to handle the wider loads” (BBC).

There are fears, perhaps over-stated, by some in American Ports, that US ports are not prepared to handle the newer large class of ships that can transverse the channel. If US ports are not dredged deeper, the US will lose a percentage of trade to the Venezuelan, or Brazilian economies.

Given the current fuel-price increases and the necessity of long journeys for goods to be transported from Brazil to China, I consider it doubtful that Brazil will increase exports to China three-fold in the next two years. Although the countries have demonstrated an ability to increase trade, the current economic slowdown and Chinese resource investments in Africa and in Australian companies will make purchases from Brazil of less immediate importance.

Trade will increase, since both countries’ are growing despite global difficulties, both will experience slight drags on expansion due to the global slowdown. This will ultimately make unattainable Brazil’s three-fold growth in trade to China .

After 2014, however, with the Panama Canal’s widening, all bets are off. In those circumstances, Brazil-China trade could certainly increase, perhaps exponentially.

“It is difficult for Chinese ships to reach Brazil, …. They only have three options; a land route, a sea route (through Panama), and another sea route around the tip of South America.”

Plus, I suppose, a sea route around Africa. But I am intrigued: what is the “land route” you are referring too? Absent the Bering Strait Tunnel, we’re talking about a combination rail/ship cargo route, I presume. So what is this route? Are there Chinese goods going across the Pacific to a Chilean port like Antofagasta, and from there overland (by rail? truck?) across South America to Brazil? Or vice versa, from Brazil across the Atlantic to a European container port like Rotterdam or Odessa, and from there by rail across Europe, Russia, and into China? Any references for cargo actually being transported in large amounts on such routes?

Comment by Aqsaqal |
16 July, 2008

Thank you for asking. As far as I know there is as yet no significant overland transport from Brazil to the Pacific Ocean whether by rail or by truck, which is why I did not go into detail.

This does not mean, however, that such a route would be impossible should it become economically feasible.

The majority of Brazil’s freight network currently flows from the interior to the sea, and the planned expansions generally are aimed at increasing cargo flow along those routes.

However, freight could eventually travel overland from Porto Velho through Peru (but must conquer the Andes) or possibly traverse from the border line at Argentina through to Chile as you discuss. If anyone can discover a unified map of rails in the South American region, that would be appreciated because it would allow for greater weighing of risks/opportunities.

If the FTAA or Mercosur spur intra-regional development, and if the Panama canal project is delayed, such interinking trade developments could occur.

I can’t really see how a Brazil-Europe-Russia-China plan would be feasible, ever, considering the transportation costs and time appear to be higher than shipping by other methods.

Still, perhaps my comments were slightly misleading. For now, and unless the Panama Canal becomes too clogged- an extensive system of land transportation makes little sense. Perhaps the situation might change post 2014 if the Canal’s expansion is too little to accomodate possibly booming demand for Venezuelan oil and Brazilian metals to be shipped to Chain. In that case, rail lines might be constructed from Brazil into Venezuela’s Orinoco Basin, but currently there are no plans for Brazil to link up to other borders.

Nevertheless, Venezuela and Brazil have resources that China requires to fuel its growth. I would not be surprised were they to embark on ambitious building programs.

Thank you again.

Comment by chinacomment |
16 July, 2008

* In response to Aqsaqal’s good question, I clarified the sentence where I speak about an overland trade route. Thank you again.

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